NFE Soars on Puerto Rico Contract Approval Amid Persistent Financial Distress

What happened

New Fortress Energy's stock surged 12.1% after Puerto Rico's Financial Oversight and Management Board granted final approval for a key contract, providing a near-term revenue lifeline. However, this positive development masks severe underlying financial woes highlighted in the DeepValue report, which rates NFE as a strong sell. The report details extreme leverage with net debt/EBITDA at 28x, negative interest coverage, and going-concern risks flagged by both management and auditors. Despite the contract, NFE continues to face persistent negative free cash flow, high debt maturities, and a precarious liquidity plan dependent on forbearance agreements. Consequently, the stock rally appears speculative and unlikely to sustain given the unchanged high probability of restructuring or equity dilution.

Implication

The contract approval offers incremental cash flow but fails to address NFE's overwhelming debt burden of over $8 billion and negative free cash flow, which have led to going-concern disclosures. With leverage metrics like a 28x net debt/EBITDA ratio and negative interest coverage, operational improvements are insufficient to prevent potential restructuring without significant deleveraging. The company's liquidity remains fragile, relying on continuous refinancing and a forbearance agreement that could trigger cross-defaults if breached. Equity holders face high dilution risk in any recapitalization scenario, making the current equity valuation of around $267 million highly speculative. Therefore, while the news provides short-term sentiment relief, it does not alter the investment thesis that NFE is a distressed asset with limited upside for current shareholders.

Thesis delta

The Puerto Rico contract approval is a minor positive catalyst that enhances near-term revenue visibility but does not shift the fundamental strong sell thesis. The DeepValue report's assessment remains valid as the core issues—extreme leverage, negative cash flow, and going-concern risks—are unchanged and continue to outweigh this development. Investors should maintain a cautious stance, as the contract does not materially improve the balance sheet or reduce the likelihood of restructuring.